News

“Strategic partnerships” between landlord and tenants important for the future of commercial real estate

Seismic shift in landlord-tenant relationship as European office occupiers become more powerful according to Jones Lang LaSalle Offices 2020 research

2011-12-06T06:00:00Z

London, 6 December - A seismic shift between the traditional landlord-tenant relationship is underway, according to research by Jones Lang LaSalle.

According to the Offices 2020 findings, 80% of real-estate industry executives believe occupiers are becoming more powerful and demanding more from their landlords and investors.

Benoît du Passage, Managing Director – France and Southern Europe, Jones Lang LaSalle and executive sponsor of the client project explained: “Occupiers recognise they are in a stronger negotiating position than ever before and are revisiting their real estate strategies to ensure their workplace is working harder for their overall business.”

“The shift in the balance of power is changing the property landscape, leading to more collaboration between landlords and developers. We expect the shift of power to occupiers will continue for at least ten years, ahead of cyclical trends.”

Bill Page, Director, EMEA Research, Jones Lang LaSalle who is leading is the research programme added: “There has been a paradigm shift in the European office market as it is now so strongly influenced by the demand side. Occupiers have a tremendous negotiating position in the market and can influence what gets built. Their brief can become much more detailed − from location, capacity, density, sustainability, security and air conditioning right down to the sprinklers. Furthermore, flexible, long-term partnerships with developers and out-sourced service providers will lead to better outcomes for both parties, especially in the absence of debt funding.”

He added: “With careful upfront investment, all sides can benefit. The cutting edge lies in developers’ ability to build long-term partnerships with their clients and out-sourced service providers, anticipating their needs and locating and configuring space in a way that adds value. Besides, funding for office development is unlikely to return to pre-2007 volumes, so inventive collaborations with corporate clients will be required to fill the gap.”

On top of this trend, lease lengths are declining as occupiers want more flexible workplace strategies. The average Central London commercial office lease has fallen by 50% in the last decade, from 12.7 years in 2001 to 7.9 years in 2011[i].

Average lease lengths in core Western European markets are expected to fall to five years by 2020. This will increase churn as occupier leases expire more quickly and more often – although net absorption – the growth in occupied stock – may fall as space is occupied more efficiently.

Benoît du Passage concluded: “Occupiers need efficient workplaces and are not shy in asking for what they want. Developers need high-quality occupiers. Because property has risen up the corporate agenda, landlords and tenants need to foster a true partnership approach as this will benefit both parties.”

– ends –

Notes to editors

Offices 2020 covers the main issues and challenges that occupiers, investors and developers will need to consider over the next decade, including sustainability, location, asset management, building obsolescence, technology, working practices, fit-out and finance.

The 12 month campaign addresses the industry’s most significant issues, and aims to help investors, developers and occupiers to better understand future trends and changes within the offices sector, consequently leading to better decision-making on future business opportunities.

· A combination of sustainability, technology and workplace practice will fundamentally shorten building lifecycles creating a huge demand for refurbishment;

· Future technological developments will have a significant impact on fit out and space requirement – but not to the extent some think. Potential game changers are a shift to 12 volt rather than 240 volt electrical technology; cloud computing and an increasing use of mobile and collaborative technology that will see space shift to 70% social and 30% individual;

· Funding and finance will remain constrained and creative partnerships and alternative funding sources will be increasingly required, but will it be enough to fill the funding gap?

150 experts across Europe and the Middle East were polled in order to identify and prioritise the top ten future issues perceived as most pertinent to them today. These are listed below:

1 Which drivers will be the true enablers for sustainable real estate?

2 What will be more important and why: office location or office quality?

3 Where will be the greatest change in office roll-out (building stock and location) and why? What will be the implications for office market performance?

4 How will new workplace technology impact on building specification and fit outs?

5 How might the cost and availability of development funding and finance change and what are the implications for office real estate?

6 With workplace utilisation changing what are the key factors that will enable fundamental change and what will the office be "for"?

7 How and why will tenure and the "landlord/tenant" relationship change?

8 How will building life-cycles change and what does this mean for sustainable refurbishment and asset management?

9 Given the challenges faced by real estate, will the industry be able to change? What talents and cultures will be required to succeed?

10 How does a strategic "SWOT" analysis look for the industry over the next 10 years and what are the key success factors